WTI crude oil:
May WTI crude oil advanced 55 cents on surprisingly light volume of 838,800 contracts. Volume was the weakest since April 3 when the May contract lost 36 cents on volume of 847,453 contracts and total open interest declined by 16,234. On April 6, total open interest increased by 9,269 contracts, which relative to volume is approximately 45% below average, but an open interest increase on yesterday’s advance is positive.The May contract lost 28,837 of open interest, which means there were more than sufficient open interest increases in the forward months to offset the decline in May and increase total open interest.
As we pointed out in yesterday’s report, for the past several days the collective total open interest relative to the price advance has been bearish. Yesterday’s abysmal volume on the advance is just another negative for the market to absorb.
As this report is being compiled on April 7 the May contract is trading 55 above yesterday’s close on heavy volume and has made a daily high of $52.94, which is the highest print since 53.43 made on March 8. The catalyst for the move higher in today’s trading is the US bombing raid on Syria.
Firm product prices continue to support crude oil and May NY gasoline is trading 1.62 cents higher on the day or +0.94% while May NY heating oil is trading up 1.64 cents or +1.02% above yesterday’s close. We continue to like the long side of gasoline and for equity traders we recommend the ETF, UGA, which we originally recommended in the March 29 report.
From the March 29 note on gasoline:
“We really like the long side of gasoline. The summer driving season has just begun the market has clearly bottomed in our opinion. The moving average setup is bullish. For example, the 50 day moving average for the May contract is 1.7205, 100 day 1.7312 and 200 day moving average is 1.6656. We are confident the 50 day will be moving above the 100 day.”
“Also, gasoline stocks are declining just as the summer driving season begins. For those of you who trade equities, we recommend initiating long positions in the ETF UGA. It tracks gasoline futures well during the past 30 days. For example, May gasoline during the past 30 days lost 5.22% while the ETF lost 4.97%. For the past 7 days, the gasoline ETF has advanced 3.68% versus the futures contract of 3.74%.”
Euro: On April 3, OIA announced that the June euro generated a short term sell signal and will likely generate an intermediate term sell signal in Monday’s trading.
The June euro lost 20 pips on light volume of 144,177 contracts. Total open interest increased by 2,376 contracts, which relative to volume is approximately 35% below average, and a total open interest increase in yesterday’s trading confirm that short-sellers were driving the market lower (1.0664).
As this report is being compiled on April 7, the June contract is trading sharply lower, down 52 pips or -0.49% and has made a new low for the move of 1.0628, which is the lowest print since 1.0649 made on March 14. Previously, we recommended waiting for a counter trend rally to initiate bearish positions once the euro generated the sell signal. Unfortunately, ever since the April 5 sell signal, the euro has not had the strength to mount even a feeble rally. No new recommendation.
From the March 27 note on the Euro:
“The French elections are on April 23 and we think it is highly likely that the euro will begin to stall at current levels and likely head lower in advance of the election.
Australian Dollar: The June Australian dollar will generate an intermediate term sell signal on April 7 after generating a short term sell signal on April 5.
The June Australian dollar lost 41 pips on surprisingly light volume of 69,467 contracts. Total open interest declined by 1,424, which relative to volume is approximately 20% below average. As this report is being compiled on April 7, the June contract is trading 36 pips lower and has made a daily low of 74.90, which is the lowest print since 74.85 made on March 10.
We like the short side of the June Australian dollar, but similar to the euro, we prefer to wait for a counter trend rally before recommending bearish positions, especially since the June contract is trading at 30 day lows. We think it is possible that a short term rally is imminent because of the meeting between the Chinese and US presidents and that positive trade news could potentially inure to the benefit of Australia.
AUD/CAD: AUD/CAD will generate a short term sell signal on April 7 and will likely generate an intermediate term sell signal early next week.
The June dollar index advanced 12.9 points on volume of 18,240 contracts. Total open interest declined by 154 contracts, which relative to volume is approximately 50% below average. As this report is being compiled on April 7, the June contract is trading sharply higher, up 49 points and has made a daily high of 101.100, which is the highest print since 101.590 made on March 15.
The June dollar index will not generate a short term buy signal on April 7 because the daily low of 100.400 is below OIA’s key pivot point for April 7 of 100.498. The low must be above the pivot. OIA’s pivot point for the intermediate term buy signal is 100.967, which means it’s possible that early next week the dollar index will be on short and intermediate term buy signals. This has major implications for the commodity markets, especially crude oil, precious metals and U.S. interest rates. We have no recommendation.
June New York gold advanced $4.80 on light volume of 169,662 contracts. Total open interest increased by 3,108 contracts, which relative to volume is approximately 25% below average, but a total open interest increase indicates that new buyers continue to move into New York gold. As this report is being compiled on April 7, the June contract is trading unchanged after making a new multi-month high of $1273.30, which takes out the February 27 print of 1268.10 and is fractionally below the November 11, 2016 high of 1273.60.
On March 22, OIA announced that June gold generated a short term buy signal and at the time was already on an intermediate term buy signal.
Despite gold’s terrific performance for the past couple of weeks, the fact remains the longer-term moving average setup is bearish. For example, the 50 day moving average for the June contract is 1236.30 while the 100 day is 1210.80, but both are below the 200 day moving average of 1269.20.
In summary, gold has much more work to do at the higher end of its recent trading range to pull the 50 and 100 day moving averages above their 200 day moving average. With the dollar index likely to be on short and intermediate term buy signals next week, much will be gleaned about the underlying strength of gold when it trades in environment of a stronger dollar and rising interest rates. We have no recommendation.
From the March 21 note on gold:
“Gold has two terrific factors in its favor: Today, the 10 year US treasury note generated short and intermediate term buy signals, which indicates that yields are headed lower and second, the dollar index is on short and intermediate term sell signals. As long as these two instruments remain in their current state, gold prices should head higher from here.”